Sectoral effect of ESG on financial performance: evidence from global hotel real estate investment trusts

This study examines the sectoral impact of ESG ratings on the financial returns of global REITs, with particular focus on the hotel sector. Using a dataset of 5,241 firm-year observations of global REITs from 37 countries spanning 2001 to 2022, we examine the relationship between ESG scores and the financial performance of hotel REITs and compare it with that in other real estate sectors. ESG ratings are sourced from MSCI, while financial data is obtained from Bloomberg and Compustat via WRDS. The analysis reveals that hotel-focused REITs benefit more financially from ESG enhancements than REITs focused on other sectors. Investments in ESG significantly enhance financial returns for hotels, primarily through increased capital gains rather than operational income. This is consistent with the Resource-Based View, which conceptualizes ESG initiatives, such as energy efficiency, governance quality, and social responsibility, as firm-specific strategic capabilities embedded in hotel REITs’ operating and asset management processes. By enhancing demand conditions and improving asset quality and valuation, these ESG capabilities translate into superior financial returns for hotel REITs, supporting the positive ESG–performance association, which is stronger than in other REIT sectors. These insights reinforce the sector-specific financial implications of ESG adoption.